Netflix: Dumb as a Rock?

Netflix announced this week that they were splitting their business, DVD/BD rentals on one side, streaming on the other.

By all accounts, this seems like a perfectly crafted way to auger the company into the ground. Everyone hates it, customers are fleeing, there's no way it can work.

But. . . what if that's the point?

What if, instead of the general assumption that Netflix CEO Reed Hastings has lost his bitstream, he's instead way smart. Wikkid smaat, as they say. I mean, it's not like he's done anything stupid lately.

Netflix has wanted out of the physical disc business for years. The single biggest expense on their tally sheets? Shipping.

Step 1: Get rid of shipping

Step 2: ????

Step 3: Profit!

With the streaming business model, Netflix has extremely low overhead: some servers, Internet costs, licensing fees. No more big warehouses, no more envelope-stuffing employees, no more discs. This has been their goal for ages, selling nothing but bits.

Enter - or in this case exit - Qwikster. By separating out the presumably less profitable side of the business, they can let it slowly slip towards obscurity. Perhaps they'll eventually try to sell it off, letting someone else figure out how to make a "low margin" disc business work. What's Blockbuster up to these days?

And a quick quip about "Qwikster." What marketing genius came up with that name? It's like naming a moped "Ultraspeedify" or a rock "Excitmentizer!"

Think it's stupid they couldn't figure out how to make your Queue appear on both websites? Not at all. They don't want this to be user friendly. They want you to cancel your disc subscription. It's only a matter of time before the disc business actually costs Netflix money. Now they've put themselves in a position to easily rip out its cold dead heart with minimal collateral damage.

Think of this as a preemptive strike, as it were, towards the inevitable downfall of the disc rental business. Netflix themselves thinks disc rentals will peak in 2013. I bet they hastened that peak this week. Will we see new streaming options now? Probably. Will they offer pay-per-view streaming options, like iTunes, Amazon, and VUDU? They've always said no in the past, but with a 100% streaming model, why not?

Have any doubt? Answer this; what part of the business did they decide to keep the Netflix brand on?

So maybe it's all a clever ploy to stay profitable by being less so now and alienating their subscriber base. That sounds possible, right?

I mean, that has to be a better answer than, "well, he's fracking crazy and he hates you."